James Pethokoukis | AEIdeas
Worrying about trade deficits while pushing fiscal stimulus doesn’t make sense
James Pethokoukis | AEIdeas
by John H. Cochrane via Grumpy Economist
Teaching a PhD class and preparing a few talks led me to a very simple example of an idea, which I'm calling the "fiscal theory of monetary policy." The project is to marry new-Keynesian models, i.e. DSGE models with price stickiness, with the fiscal theory of the price level. The example is simpler than the full analysis with price stickiness in the paper by that title.